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1、Greg Gould U.S.IT ServicesApril 2002,IT Services Investment Perspective,U.S.IT Services Coverage Group,Key Sector Stock Points,Good overall demand and attractive valuationsSector net income growth should reach 15%in CY02Increased focus on accounting helps investment case for processors and systems i
2、ntegratorsTech rebound?Favorite areas processing and outsourcingStock ideas:Processing First Data,Concord,ADPOutsourcing ACS,ExultIT consulting/systems integration Accenture,KPMG Consulting,Cognizant,Note:Includes AUD,CSC,EDS,FDC,FFM,FISV,NDC,PAYX.GS&Co.and First Call estimates.,Valuation Trends,Ind
3、ustry Perspective,Large industry-$440 billion in worldwide revenueHighly fragmented marketThe“center of gravity”has shifted to the larger firmsAreas with the highest growth potentialBPO(Business Process Outsourcing)Platform consolidation/technology asset optimizationNetwork and desktop outsourcingMi
4、d-market outsourcingShift in payment systems,6,IT Services Estimated Market Share of the Top Worldwide Services Providers,7,IT Outsourcing Trends,Expect 12-15%year-over-year growth in calendar 2002,similar to 2001Focus on corporate cost cutting should continue to fuel sales activity in 2002-2003BPO
5、is becoming increasingly important to the sectorThird-party financing“controversy”has recededDemand from government clients will be an important incremental growth driverFavorite stocksAffiliated Computer Services(ACS)Exult(EXLT)Electronic Data Systems(EDS),8,BPO(Business Process Outsourcing)Outsour
6、cing Evolves,$100-120bn market opportunityAnticipate 15-20%sector growth,but likely faster in“early adopter”markets(e.g.,HR,F&A)Intellectual capital(vs.scale)is the critical success determinantAttractive economicsTechnology enablers eliminate important delivery and cost obstaclesBuyer familiarity wi
7、th outsourcing eliminates psychological hurdles,9,BPO A Comparison Vs.Traditional Data Center Outsourcing,Gross Margin:18-25%contract length-3-7 yearsclient expansion opportunity-moderate/highpartnership attitude-moderatePricing metrics include:(1)Resources Used(2)service level agreement Incentive(3
8、)minimums.Typical functions include:(1)data center operations(2)LAN/WAN operations(3)help desk(4)application maintenance(5)application development.IT onlykey to success is scalethe biggest challenge is infrastructure optimization50%of the time the competition is internalwhen there is competition the
9、 focus is on price and service level agreements,Gross Margin:30-40%contract length-3-7 yearsclient expansion opportunity-highpartnership attitude-highPricing metrics include:(1)Volume of throughput(2)service level agreement Incentive(3)minimums.Typical functions include:(1)Human resources(2)Sales,ma
10、rketing and customer care(3)Payment servicing(4)Finance and administration(5)Logistics.IT and Processkey to success is standardized workflow,process automation and self-servicethe biggest challenge is re-engineering to best practice100%of the time the competition is internalwinning the business is b
11、ased on best practices and cost reduction,Example:Claims Processing,Example:Data Centers,10,IT Consulting/Systems Integration Trends,Some reasons for hope the tone of business appears to be stabilizingBigger is better the larger firms are on a multi-year trendline to gain market shareMaturation of t
12、he Internet tech cycleServices now leads technology implementationsDemand driversTechnology platform consolidationCost cutting through process re-engineeringApplication outsourcingTechnology asset optimizationERP,CRM,network consulting,security and infrastructure softwareRisksInherently low visibili
13、tyClose ratesPricingEurope“Changing”complexity of engagements,11,IT Consulting/Systems Integration Trends,Consulting spin-offs by auditors unlikely to boost demand muchPotential$2-4bn opportunityAnnounced intentions by PwC and Deloitte to spin-off should limit client attritionInherently volatile ove
14、rall business trends this may get lost in the noise,12,Offshore development and maintenance,Likely one of the most important issues to confront the sector in yearsBusiness model has been“stress-tested”A major focus for many firmsCost arbitrage likely to continue for yearsProject management(not simpl
15、y staffing)is the critical long-term success determinant RisksRevenue cannibalizationInternal“buy-in”Execution,13,Government picking up and slowing down,$90-100bn market opportunityFederal should remain healthy,but beware of Homeland Security“hype”State and local market should decelerate is this a r
16、epeat of the corporate market in 2000?,14,Our investment framework,15,The Analyst“Checklist”,Sales modelPipeline managementSize,composition,growth of sales forceMarketing strategyPartnerships/alliances,Finance/administrationDaily operatorsProject methodologiesInstitutionalized ability to change,Serv
17、ice offeringDelivery capabilityBusiness case justificationProject management skillsAverage project sizeRate of repeat businessStrong client references,Culture/core valuesExperienceRetentionCareer pathProfessional developmentRecruiting,Organic vs.acquiredVisionObjectivesObstacles/challengesAcquisitio
18、n strategy,Key competitorsDifferentiatorsBarriers to entryWin rateWhy win/lose,ScalabilityProfitabilityVisibilityRevenue mixBroad&deep equity ownership,GrowthOperating marginFinancial consistencyBalance sheet,Market Position,Sales and Marketing,Operational Infrastructure,Value Proposition,Management
19、/People,Growth Strategy,Competitive Positioning,Business Model,Financial Model,SizeMarket growthState of the market,16,Favorite Stocks in IT Consulting/Systems Integration Trends,Accenture(ACN)KPMG Consulting(KCIN)Cognizant(CTSH),17,Payment Processing Trends,Debit will drive growthSector revenue gro
20、wth could accelerate as the mix of debit continues to riseCredit card spending growth is running at 7-8%,in line with prior recessionary levelsDebit networks will take center stage in 2002 following major acquisitions by Concord and FDC in 2001Pricing trends remain benign in merchant acquiring,and t
21、here are some signs of improvementFavorite stocksConcord EFS(CEFT)First Data Corp(FDC),18,Payroll Processing Trends,Sector earnings growth should reaccelerate as interest rates stabilizeAdd-on services that wrap around payroll and international expansion should help support 2002 earningsPerhaps the
22、most attractive long-term growth marketBenign competitive landscapeNatural leverage in businessOnly 30%penetration in US marketMarket doubles with expansion into EuropeAdd-on services will drive growth increase the revenue-per-client potential by 4X to 10XFavorite stock Automatic Data Processing(ADP
23、),19,Goldman Sachs Technology Index Performance,1994-2002,20,Customer Care and Billing,Macro environment for the telecom sector remain very difficult,but business case for CC&B software remains strongThe industry has consolidated into a“two-horse race”between Amdocs and ConvergysLarge target market with approximately 50%of CC&B spending still done internallyConsolidation of the telecom industry favors both Amdocs and ConvergysFavorite stock Amdocs(DOX),Greg Gould U.S.IT ServicesApril 2002,IT Services Investment Perspective,
